BILL ANALYSIS                                                                                                                                                                                                    Ó



                                                                       AB 515


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          ASSEMBLY THIRD READING


          AB  
          515 (Eggman)


          As Amended  May 4, 2015


          Majority vote


           ------------------------------------------------------------------- 
          |Committee       |Votes |Ayes                  |Noes                |
          |                |      |                      |                    |
          |                |      |                      |                    |
          |----------------+------+----------------------+--------------------|
          |Revenue &       |9-0   |Ting, Brough,         |                    |
          |Taxation        |      |Dababneh, Gipson,     |                    |
          |                |      |Roger Hernández,      |                    |
          |                |      |Mullin, Patterson,    |                    |
          |                |      |Quirk, Wagner         |                    |
          |                |      |                      |                    |
          |----------------+------+----------------------+--------------------|
          |Appropriations  |17-0  |Gomez, Bigelow,       |                    |
          |                |      |Bonta, Calderon,      |                    |
          |                |      |Chang, Daly, Eggman,  |                    |
          |                |      |Gallagher,            |                    |
          |                |      |                      |                    |
          |                |      |                      |                    |
          |                |      |Eduardo Garcia,       |                    |
          |                |      |Gordon, Holden,       |                    |
          |                |      |Jones, Quirk, Rendon, |                    |
          |                |      |Wagner, Weber, Wood   |                    |
          |                |      |                      |                    |
          |                |      |                      |                    |
           ------------------------------------------------------------------- 









                                                                       AB 515


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          SUMMARY:  Expands the existing tax credit program under the  
          Personal Income Tax (PIT) Law and Corporation Tax (CT) Law for  
          contributions of qualified donation items to a food bank and  
          extends the program until January 1, 2021.  Specifically, this  
          bill:  


          1)Revises the definition of a "qualified taxpayer" (QT) to include  
            persons responsible for growing or raising a qualified donation  
            item, or harvesting, packing, or processing a qualified donation  
            item. 


          2)Revises the definition of "qualified donation item" (QDI) to  
            include, in addition to fresh fruits and vegetables, the  
            following raw agricultural products or processed foods, as  
            specified:


             a)   "Fruit, nuts or vegetables" as defined in Food and  
               Agricultural Code (F&AC) Section 42510;


             b)   "Meat food product" as defined in F&AC Section 18665;


             c)   "Poultry" as defined in F&AC Section 18675;


             d)   "Eggs" as defined in F&AC Section 75027;


             e)   "Fish" as defined in F&AC Section 58609; and,


             f)   Any cheese, milk, yogurt, butter, and dehydrated milk  
               meeting the requirements in F&AC Division 15.









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             g)   All of the following food items as defined in Health and  
               Safety Code Section 109935: 


                  i)        "Rice"; 


                  ii)       "Beans"; 


                  iii)      "Fruit, nuts, and vegetables in canned, frozen,  
                    dried, dehydrated, and 100% juice forms";


                  iv)       "Vegetable oil and olive oil"; 


                  v)        "Soup, pasta sauce, and salsa";


                  vi)       "Infant formula";


                  vii)      "Bread and pasta"; and,


                  viii)     "Canned meats and canned seafood." 


          3)Increases the existing tax credit rate from 10% to 15% and  
            specifies that the credit value is calculated, with reference to  
            the qualified value (QV) of the QDI, instead of inventory costs.


          4)Defines a "qualified value" as either of the following:


             a)   The weighted average wholesale sale price based on the  








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               QT's total wholesale sales of the donated item sold within  
               the calendar month of the QTs donation; or,


             b)   If no wholesale sales of the donated item have occurred in  
               the calendar month of the QT's donation, the QV shall be  
               equal to the nearest regional wholesale market price for the  
               calendar month of the donation based upon the same grade  
               products as published by the United States Department of  
               Agriculture's Agricultural Marketing Service, or its  
               successor.  


          5)Requires donors to provide item value and information regarding  
            where the donation items were grown or processed to food banks  
            and requires the food banks to issue certificates with respect  
            to donated items.  


          6)Authorizes the Franchise Tax Board (FTB) to request copies of  
            any certificates. 


          7)Requires the FTB to include in its annual report the estimated  
            value of the QDIs, the origin of the QDIs, and the month the  
            donations were made.  


          8)Renames, on or after January 1, 2016, the State Emergency Food  
            Assistance Program (SEFAP) as the CalFood Program (CFP).


          9)Requires the CFP to provide food and funding for the provision  
            of emergency food to food banks established pursuant to the  
            federal Emergency Food Assistance Program. 


          10)     Specifies that all monies received by the CFA, upon  
            appropriation by the Legislature, must be allocated to the State  








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            Department of Social Services (SDSS) for allocation to the CFP.   



          11)     Repeals the tax credit program on December 1, 2021.


          FISCAL EFFECT:  According to the Assembly Appropriations  
          Committee:


          1)Potentially significant General Fund (GF) costs to FTB to  
            administer changes to systems and procedures; no change to DSS  
            costs, which are reimbursed with federal funds received under  
            the program.


          2)Estimated GF revenue decreases of $0.4 million, $1.0 million,  
            and $1.4 million in FY 2015-16, FY 2016-17, and FY 2017-18,  
            respectively.


          COMMENTS:  


          1)Author's Statement:  The author has provided the following  
            statement in support of this bill:


               California is the leader agricultural producer in the  
               U.S., yet many Californians still suffer from hunger  
               and poor nutrition.  AB 515 will broaden the existing  
               state tax credit offered to agricultural producers for  
               donations to qualified California non-profits, such as  
               food banks.  It expands the list of eligible products  
               to include other fresh items and a limited set of core  
               shelf-stable items.  It also moves the tax credit to  
               20% of the donation items wholesale value, and extends  
               the sunset of this program to 2021.








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          2)Existing Tax Credit Program.  Under PIT and the CT laws, a  
            qualified taxpayer is allowed a tax credit, in an amount equal  
            to 10% of the inventory costs of the fresh fruits or fresh  
            vegetables donated to food banks located in California.  (AB  
            152 (Fuentes), Chapter 503, Statutes of 2011.)  According to  
            the Capital Area Food Bank's (CAFB) Web site, California is  
            ranked 19th for food insecurity nationwide, with a food  
            insecurity rate of 16.2%, which translates into 6.1 million  
            Californians with, on average, one-in-six people in California  
            not knowing where their next meal will come from.  All the  
            more troubling is that the child food insecurity rate is  
            26.3%, meaning 2.4 million, or more than one-in-four children,  
            in California may go to bed hungry each night.  CAFB  
            represents 42 food banks throughout California that provide  
            food to soup kitchens and food pantries in schools, churches,  
            and community and senior centers.  CAFB partners with over 100  
            California growers and packers and distributed 140 million  
            pounds of food to people in need.


            The Scope of this Bill.  This bill broadens the scope of what  
            would be considered a qualified donation item and redefines  
            the computation of the credit amount.  This bill also  
            increases the rate of the credit from 10% to 15% and expands  
            the definition of a qualified taxpayer.  The proposed expanded  
            scope of the program would theoretically increase donations  
            simply by widening the available pool of both participants and  
            products, even without the higher credit rate.  In some cases,  
            a qualified taxpayer may be more inclined to contribute a QDI  
            simply because he/she is not able to make a profit by selling  
            his/her products.  In those instances, receiving the current  
            10% credit would be enough of an incentive.  Receiving a  
            larger credit may go beyond what is needed to encourage the  
            desired result.    


          3)Tax Expenditure vs. Direct Expenditure.  Existing law provides  








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            various credits, deductions, exclusions, and exemptions for  
            particular taxpayer groups.  In the late 1960s, United States  
            Treasury officials began arguing that these features of the  
            tax law should be referred to as "expenditures" since they are  
            generally enacted to accomplish some governmental purpose and  
            there is a determinable cost associated with each (in the form  
            of foregone revenues).  


            As the Department of Finance notes in its annual Tax  
            Expenditure Report, there are several key differences between  
            tax expenditures and direct expenditures.  First, tax  
            expenditures are reviewed less frequently than direct  
            expenditures once they are put in place.  Second, there is  
            generally no control over the amount of revenue losses  
            associated with any given tax expenditure.  Finally, absent a  
            sunset date, a two-thirds vote is required to rescind an  
            existing tax expenditure once enacted. 


            Tax credits are generally used to encourage socially  
            beneficial behavior, to provide relief to taxpayers who incur  
            specified expenses, or to influence behavior (including  
            business practices).  In contrast to the value of a deduction  
            to a taxpayer, the value of a tax credit is the same,  
            regardless of the tax rate.  Thus, a tax credit is generally  
            more appealing to taxpayers.  Furthermore, charitable  
            deductions allowed to corporate taxpayers are limited to 10%  
            of the taxpayer's net income and thus a tax credit for the  
            same donations will be more valuable to a corporate taxpayer. 


          4)Qualified Taxpayers Outside California.  This bill provides  
            that a credit equal to 15% will be given to qualified  
            taxpayers that donate qualified items to food banks in  
            California.  Qualified taxpayers located in as well as outside  
            of California are able to claim the credit as long as they  
            meet the applicable requirements and donate qualified items.   
            It is unclear whether the benefits of potentially increasing  








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            the amount of donated food outweighs the costs of subsidizing  
            producers located, and economic activities performed, outside  
            of California.




          Analysis Prepared by:                                               
          Oksana Jaffe / REV. & TAX. / (916) 319-2098  FN: 0000636